TaxTMI 
TaxTMI 
2022 (8) TMI 1004
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....f Insolvency & Bankruptcy Code, 2016 (in short IBC). Brief Facts: 2. Appellant is the Suspended Director of CD which is undergoing CIRP Proceeding. CD is engaged in sale and export of sea foods such as squid, fish, prawns and crabs. Respondent No. 1 (in short R-1) is Samunnati Agro Solutions Pvt. Ltd. (Chennai) i.e Operational Creditor (in short OC). Operational Creditor is in the business of export of marine products, entered into an agreement with CD i.e. SR Marine Foods Pvt. Ltd. under 'Sourcing and Distribution Agreement' (in short SDA) on 17.10.2018. As per this agreement, OC was to pay directly to the supplier of sea food who will deliver goods to CD. The supply of such goods were covered by 'Bill of supply' and 'Goods Delivery Receipts' in short GDR. There are many such 'bill of supply' and 'GDR' and the CD acknowledged the receipt of goods in good condition and thereafter signed. These documents indicated that goods were sold and delivered on behalf of OC to CD. However, during period of agreement due to non-receipts of various payments, OC took recourse to various remedies for recovery including filing of a case under Section 138 of Negotiable Instrument Act, 1881. A....
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....he Appellant was shocked to know that OC had presented the signed cheques by quoting the amount which was not due at all on 24.06.2019. OC issued the demand notice in Form-3 on 24.06.2019 claiming that CD had committed a default of Rs. 2,11,46,122/- (inclusive of alleged default of Rs 1,99,28,000/- + 3% penal interest per month amounting of Rs. 12,18,122/-). Learned Counsel stated that there was no default committed by CD and non-payment was due to 'Force Majeure Clause'. Learned Counsel further stated that OC the at best could have referred the matter to Arbitration in accordance with Clause 13 of SDA, becuase according to Learned Counsel, the dispute was existing. On the other hand, OC had sought to invoke arbitration clause only in the guarantee agreement against alleged guarantor for the same claims which were being canvassed against CD in Application No. IBA/1368/2019. On Application of OC, Hon'ble High Court of Madras at Chennai appointed Hon'ble Justice K. Kannan retired High Court Judge as sole the arbitrator against the alleged Guarantors. OC also filed an application under Section 9 of IBC against the 'Corporate Debtor' guarantors of CD. In the meantime, CD had also is....
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....ake still due to pre-existing disputes, Impugned Order was not correct and required to be set aside. Respondent's Submissions : 11. Learned Counsel for the Respondent has stated that the Appellant has failed to pay the operational debt and the Learned Adjudicating Authority has rightly accepted the petition and passed the order for CIRP Proceedings against Appellant. Learned Counsel has requested that the appeal be discussed being devoid of any merit. 12. Learned Counsel has stated that OC is engaged in the business of sea food items and by way of an arrangement between OC and CD it was agreed that OC will directly pay the suppliers of sea food/ shrimps etc. who would in turn deliver the goods to CD. There are several invoices and GDR to prove the same and CD had also acknowledged the receipt of goods in good condition. CD however, failed to make payment against invoices and therefore, OC was compelled to file the case under Section 138 of Negotiable Instrumental Act in order to realise the due debt. 13. To secure the financial position, OC also started Arbitration Proceedings in terms of SDA. Similarly, CD also filed one arbitration application and both were decided by....
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....entioned that he has already filed an appeal before State Consumer Forum and the case is still pending. He further submitted that the claim of insurance has nothing to do with this case and it is not connected at all with Section 9 Application admitted by the Adjudicating Authority. 19. Learned Counsel has also referred to a decision of the Hon'ble Supreme Court passed in '2022 SCC OnLine SC 142 in Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Pvt. Ltd.' . By this Judgment the Hon'ble Supreme Court has held that the claim must bear some nexus with the provision of goods and services without specifying as to who is the supplier or receiver. It is also stated that the Hon'ble Supreme Court has enlarged the scope of operational debts and held at a debt which arises out of advance payment made to Corporate Debtor for supply of goods or services would be considered as an operational debt. 20. Learned Counsel has reiterated that ten invoices, available on the record along with goods receipt notes, clearly demonstrate that SDA was purely a supply contract. 21. On the issue of non-levy of GST which has been raised by Appellant, Learned Counsel has brought....
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....ured or unsecured;" The other relevant definition of IBC with reference to this Appeal are 'Operational Debt' and 'Operational Creditor' which are as under:- "5(21). operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the [payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; "5(20). "operational creditors" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;" Similarly, default is also defined under Section 3(12) of IBC which as under:- "3(12). "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be; The Financial Creditor and Financial Debtor is also defined under Section 5(7) & Section 5(8) of the IBC which as under:- "(7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legall....
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....itors have relationship with the entity as financial contract, like loan or security etc. Whereas, an operational debt as defined under section 5(21) of IBC signifies a claim in respect of the provisions of goods or services. To further understand we tried to peruse the available records especially the SDA between OC & CD dated 17.11.2018 and Memorandum of Compromise Settlement dated 30.06.2021 along with bill of supply and goods receipt notes. The caption of agreement itself is 'Sourcing in Distribution Agreement' between CD & OC. While perusing the agreement it is evidently clear that the relationship between OC & CD is with reference to procurement of marine products. For illustration purpose only following few clauses observed from the SDA (only indicative not exhaustive clauses). The Company is engaged in the business of procuring Agricultural commodities on wholesale basis : - The wording used in the above clauses shows that these transactions were of the nature of trading / procurement and supply of goods and services and not of financing. 26. We have noted the argument of Learned Counsel for the Appellant that insurance company has rejected the claims of R....
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....mand notice or otherwise. The demand notice was issued on 24.06.2019 in Form 3. Whereas, the arbitration petition was filed by OC on 03.11.2020. CD also initiated arbitration proceeding on 07.12.2020. Thus, it is clear that both the arbitration petition filed by OC (R-1) and CD (Appellant) were later then the demand notice issued. The intervening period between issue of demand notice and arbitration petition is of more than one year and four months. Incidentally, the common arbitration award was passed on 16.04.2021. 29. Another contention of Appellant to establish pre-existing dispute is the fact that the pendency of Section 34 of Arbitration Act was acknowledged by Respondent in the 'Memorandum of Compromise Settlement' entered into CD and OC on 30.06.2021. This is also found to be an event subsequent to issue of Demand Notice. 30. From the series of events, it is clear that the arbitration petition as well as settlement memo were subsequent to issue of demand notice. As we have already discussed earlier in terms of legal provision of the IBC as well as the relevant decision of the Hon'ble Supreme Court, pre-existing dispute can be considered only if it is pre dated then th....